Consolidated financial statements are the "financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent company and its subsidiaries are presented as those of a single economic entity", according to International Accounting Standard 27 "Consolidated and separate financial statements", and International Financial Reporting Standard 10 "Consolidated financial statements".
While preparing a consolidated financial statement, there are two basic procedures that need to be followed: first, cancel out all the items that are accounted as an asset in one company and a liability in another, and then add together all uncancelled items.
There are two main type of items that cancel each other out from the consolidated statement of financial position.
"Investment in subsidiary companies" which is treated as an asset in the parent company will be cancelled out by "share capital" account in subsidiary's statement. Only the parent company's "share capital" account will be included in the consolidated statement.
If trading between different companies in one group happen, then the payables of one company will be cancelled by the receivables of another company.
Goodwill is treated as an intangible asset in the consolidated statement of financial position. It arises in cases, where the cost of purchase of shares is not equal to their par value. For example, if a company buys shares of another company worth 40,000for60,000, we conclude that there is a goodwill worth or $20,000.
Proforma for calculating goodwill is as follows:
Goodwill
Fair value of consideration transferred
Plus fair value of non-controlled interest at acquisition
Less ordinary share capital of subsidiary company
Less share premium of subsidiary company
Less retained earnings of subsidiary company at acquisition date
Less fair value adjustments at acquisition date
If the parent company does not buy 100% of shares of the subsidiary company, there is a proportion of the net assets owned by the external company.
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The objective of the course is to provide participants with accounting mechanisms for understanding and anaalyzing the financial statements of a company.
In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than 50% of outstanding shares, or the corporation would generally cease to be a subsidiary of the parent. It is, however, possible (such as through special voting rights) for a controlling interest requiring consolidation to be achieved without exceeding 50% ownership, depending on the accounting standards being employed.
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year.